Israel - International trade

Until the 1990s, high
tariffs
and strong non-tariff barriers characterized Israel's trade
policy, and several barriers are still in place in particular with
regard to processed food and agricultural products. Israel has free
trade agreements with the European Union (since 1975), the United States
(signed in 1985, fully effective since 1995), the European Free Trade
Association (EFTA, effective since 1993), Canada (1997), and Turkey and
has concluded bilateral agreements with a number of other states. Israel
is the sole country in the world to have both European Union and U.S.
free trade agreements. In June 2000 an association agreement between the
EU and Israel came into force. In line with WTO regulations, Israel
gradually began exposing the domestic market to foreign imports since
September 1991. This process allowed administrative limitations on
imports from third countries to be canceled, imposed higher rates of
customs tariffs that since have been reduced, according to their degree
of influence on local production, and allowed Israeli industry time to
adjust to competition. The

final stage of this process came to an end in September 2000, when
tariff rates reached a maximum range of 8 percent to 12 percent.

Israel's main exports are manufactured goods and software, which
accounted for 97 percent of total exports (excluding diamonds, ships and
aircraft) in 2000. Agricultural exports accounted for 3 percent in 2000,
compared to 16.5 percent in 1970, illustrating the depth of
Israel's structural changes. The share of Israel's
information communication technology exports as a percentage of exports
of services is substantially high. In 1997, this share (20.1 percent)
was second only to Japan (24 percent), and much higher than the OECD
average, which was 12.5 percent. The United States alone absorbs more
than a third (41.2 percent) of Israel's exports. Other important
destinations include the European Union (27.3 percent), of which Belgium
(6 percent), Germany (4.8 percent), and United Kingdom (4.3 percent)
dominate; and Asia (18.5 percent), of which Japan (2.7 percent)
dominates, according to Central Bureau of Statistics 2000 figures. The
change in Israel's exports between 1999 and 2000 indicate that
the growth rate of traditional manufacturing exports increased slightly,
whereas it increased dramatically in the high-tech industries.

The geopolitical situation that has prevailed in the Middle East, since
the inception of Israel, has prevented trade between Israel and its
neighbors. Furthermore, the difference in the level of development and
production structure between Israel and its neighbors made Europe and
the United States her main trading partner. In 2000, the United States
and the EU accounted for 32 percent and 30 percent, respectively, of
Israel's exports and for 22 percent and 41 percent of its
imports. In 2000, exports for the United States (excluding diamonds)
totaled US$21.7 billion, constituting an increase of 23.3 percent in
Israel's exports. Within the EU, Israel's largest export
markets were Germany (21 percent), the United Kingdom (18 percent), The
Netherlands and Italy (both 11 percent), and France (10 percent).
Exports to Asia (excluding diamonds) increased from 12 percent in 1998
to 16 percent in 1999.

Israel has traditionally run a large external
trade deficit
, meaning that imports exceeded exports. Israel's imports have
always exceeded its exports because of the Jewish state's
dependence on raw materials. In addition, Israel imports military
equipment, investment goods, rough diamonds, fuels, and
consumer goods
, mainly from the United States (18.6 percent), Belgium (9.9 percent),
Germany (7.5 percent), the United Kingdom (7.6 percent), Italy (4.8
percent), and Japan (3.3 percent), according to 2000 figures. The cost
of Israel's imports has largely been offset by cash grants from
the U.S. government and charitable organizations and individuals abroad.
The EU accounted for 67 percent of Israel's 2000 trade deficit,
and Asia accounted for 15 percent. The trade balance with the United
States was positive.

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